Insights from the 2023 Innovative Payments Conference

 Tim Sloane, a payments expert, served as the emcee of the Innovative Payments Conference. In this blog, he provides some insights from the speakers and his conversations at the event. If you’d like to hear a discussion between Tim and our CEO, Brian Tate, about the conference, check out our podcast.  

Before discussing the great insights this conference delivered, I’d point out that this was the first time I’ve witnessed regulators directly engaging payment innovators regarding specific products. Listening to innovators discuss the different approaches to implementing EWA and how these approaches impact regulatory issues and then to hear regulators share their thoughts on similar product complexities was a unique opportunity!
 
That said, I’d argue that the primary idea that cut across almost all of the presentations we heard was this:

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“Payment Innovation occurs in the gray areas.” ​

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​Simply put, an innovative payment solution not currently vetted by regulators and operating in market is living in a gray area in respect to its adherence to existing regulatory constructs.  The obvious examples of this includes three of the fastest growing solutions that were also discussed in detail at the conference: 1) Earned Wage Access, 2) Buy Now Pay Later, and 3) delivery services like GrubHub that use Just In Time Funding (JIT) integrated to business rules to assure drivers are funded only at appropriate stores as they buy goods for a specific client.
 
Another takeaway that doesn’t surprise a payments geeks, but is often a major surprise to non-payment professionals that expect a six-to-nine month launch window, is the time it takes to get a new product into market. Six months might be possible if the product exactly conforms to an existing payment template but if the product is innovative, then it must confront and address a complex payment value chain (bank, processor, networks, and multiple third parties) each of which are constrained by multiple complex and often enigmatic rules and regulations promulgated by state governments, the federal government, and private entities like the payment networks.
 
Consider for example the Banking as a Service (BaaS) model that encourages BaaS be embedded into popular products. This is a simple concept to grasp, in that it introduces new banking products that can be sold to the existing consumer base. The challenge of course is that banking and payment regulations will encumber any such offering and could even encumber the traditional product that suddenly embraces BaaS. For example, moving fuds into a bank account is very different than accepting funds for a product or service. Gamers for example that didn’t require a full KYC when using closed-loop cards for in-game payments would now require it, and funds coming into the gaming ecosystem will need to be more carefully monitored for money laundering and other criminal activity.
 
Several conference sessions, including the session on child exploitation, identified many types of criminal activity that have become disturbingly common in payments, the need to identify funds associated with these activities, and then the effort required to prosecute the criminals. The scale of the effort was highlighted by PayPal, the FBI, and private organizations dedicated to helping victims. Many preventative activities are performed not due to government mandate, but by a moral mandate. As such it appears to me that it would be wise for companies to fund a law enforcement operations center both for their consciences and to garner social credit.
 
Two sessions looked at the role of AI in payments and identified both the good news and the bad news. AI will help payment suppliers detect and catch the criminals just discussed. However, the broad availability of AI will also enable more criminal activity that challenges detection by humans, which suggests that an AI defense is likely to become the only way to stem the tide. Criminals are already using voice and facial deep fakes to trick consumers and are likely to directly target the voice and facial recognition solutions deployed in banks and payment solutions that are currently deployed. Deep fakes will also be used as an attempt by criminals to establish simulated identities that can bypass traditional KYC solutions.  This suggests that adversarial AI will need to be created that trains KYC solutions to recognize deep fakes.
 
Making mass transit easier to pay for was also a theme that came through and it highlights the complexity that can evolve over time when independent agencies create solutions that are tightly aligned with their own needs. One example is the huge investment in ride control systems in many cities and states. These were designed first to support locally struck tokens, then locally issued prepaid cards. This infrastructure investment makes the deployment of a traditional card-based payment solution very expensive and in some instances requires upgrades to the payment networks themselves, for instance to meet the speed requirements associated with processing a stream of subway riders rushing through gates to catch a train or to replace a single ticket that enables both a subway ride and a bus ride within a certain zone.
 
Stu Richards, CEO of Bredin, provided a deep dive survey to gauge how small business owners have implemented payments, what features they need, what they are likely to invest in over the next 12-18 months. The survey also asked what messages and message delivery channels payment providers need to focus on to break through the noise.
 
Dan McCrum’s review of the rise and fall of WireCard was mesmerizing. It reminds all of us in payments that people often place far too much credit in a good story and so fail to test those stories to detect fraud taking place right under our nose. Add investment bankers and government to the list of those caught up in the lie and billions of dollars can be lost and foreign armies funded.